China’s economy readies for ‘soft landing’: official

STRONG CONTROLS:：Officials said Beijing has plenty of tools to help rein in inflation, and China’s central bank governor talked about liberalizing interest rates

AFP, BEIJING

Sat, Dec 18, 2010 - Page 11

China’s economy is moving toward a “soft landing,” as the government has a “strong ability” to rein in soaring inflation, Chinese Banking Regulatory Commission Chairman Liu Mingkang (劉明康) said yesterday.

Production, consumption and investment remained strong in China even as breakneck economic growth slowed throughout the year, Liu told a financial forum.

“The economy is experiencing a soft landing trend, judging from the current point,” Liu said.

The world’s second-largest economy posted annualized growth of 9.6 percent in the third quarter of 2010, slowing from 11.9 percent in the first three months of the year.

Inflation surged to 5.1 percent last month, the fastest increase in more than two years and above Beijing’s full-year target of 3 percent.

Liu said inflation next year was “likely to be contained at a reasonable level,” citing a range of measures taken by the government to ensure adequate and stable supplies of key commodities and goods.

“The government has quite a strong ability to curb inflation,” he said at the event sponsored by a magazine.

China’s central bank announced in October the country’s first interest rate hike in nearly three years, one of several policy levers pulled in a bid to stem the flow of liquidity into the economy, which is fanning inflation.

People’s Bank of China Governor Zhou Xiaochuan (周小川) said at the forum that authorities aimed to speed up liberalization of the country’s interest rate regime to make it more market-based.

The central bank currently sets rates for loans and deposits for all of China’s banks.

In comments published yesterday in the China Daily, Zhou said more efforts were needed to soak up excess liquidity, but warned the central bank should be cautious in raising interest rates.

Liu also said it was becoming harder to keep the economy on an even keel because of sustained weak foreign demand.

He said exporters had been badly squeezed by soaring costs and a rising yuan, which since June has gained 2.5 percent against the US dollar amid accusations that Beijing has deliberately kept its currency low to make Chinese export cheaper.

The excess global liquidity, -triggered by steps like the US Federal Reserve’s decision last month to pump US$600 billion into the US economy, may also put China at risk, Liu said.

He said emerging markets likely “face unprecedented pressure” from speculative inflows of such money seeking quick returns in such economies.

“It may cause a significant impact on our economy if our response measures are not forceful enough,” he said.

He added many countries were studying the introduction of a tax on foreign exchange transactions intended to discourage speculation, but did not specify whether China was among those considering the move.